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Stock Update: M&M and Selan Exploration Technology

SI Reporter/New Delhi 20 Dec 12 | 08:38 AM

Mahindra & Mahindra
CMP: Rs 968
Target price: Rs 1,046
Recommendation: Buy


Mahindra & Mahindra (M&M) derives 80% of its automotive volumes from the utility vehicle (UV) and the light commercial vehicle (LCV) segments. The UV and the LCV segments managed to buck the overall slowdown in the automotive industry with growth of 62% and 17% respectively in year-till-date (YTD) FY2013 (April-November 2012) as compared with a flat-to-negative growth for other segments.

To factor the increased tractor volume and consequent improvement in margin (the margin of the tractor segment is almost double compared with the automotive margin), we are raising our FY2013 and FY1204 estimates. We are also introducing FY2015 estimate in our note. Our revised earnings per share (EPS) estimates for FY2013 and FY2014 stand at 52.5 and 50.7 respectively. Our FY2015 estimate stands at Rs53.9 per share. We are rolling over the price target on the average of FY2014 and FY2015 estimates. Our price target stands revised at Rs 1,046. We maintain “Buy" recommendation on the stock.

Selan Exploration Technology
CMP: Rs 316
Target price: Rs 360
Recommendation: Buy


In Q2FY2013, the net revenues (adjusted for the petroleum profit) of Selan Exploration Technology (Selan) grew by 21% year on year (YoY), backed by a 16% year-on-year (Y-o-Y) improvement in the volume, while the remaining gain was translated from an increase in the exchange rate of dollar over the rupee. The crude realisation in terms of dollar declined by 4% YoY and 17% quarter on quarter (QoQ), but the dollar gained over the rupee by 8% over the period. Sequentially, the sales decline was largely on account of lower realisation of crude oil. Though crude declined by 17% QoQ, dollar gained 8% over the rupee. Hence, the effective realisation in terms of the rupee declined by 10% and sales declined 11% QoQ to Rs 24.1 crore.

With the management now sounding more confident on its development program after getting it approved by the regulator, we expect the company to embark on its next phase of growth from FY2014. We are already assuming an improving trend in the production output from the next fiscal. However, the receipt of the much awaited regulatory approvals would come as a shot in the arm for the stock and could result in re-rating of the multiples. Thus, we see an upside to our price target but wait for further confirmation on regulatory approvals before making any changes. In the meantime, we retain our Buy rating on the stock with price target of Rs 360 (based on 4x EV/EBITDA FY2014E).

Source: Sharekhan Fundamental Research

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